Did you purchase a pre-construction condo in Ottawa, and are looking for a way to sell before your closing? You might have heard the term assignment, or seen units that are being sold as “assignments”. While not an easy task, an assignment can provide you with the ability to sell your “condo” without needing to close on it.

What is an assignment?

An assignment is a transfer by the Assignor (original purchaser) of the original Agreement of Purchase and Sale to the Assignee (new buyer). This means that they are not selling or buying the actual condo, but rather their interest in the deal. The Assignee is buying the ability to become the Assignor. You often hear assignments referred to as selling “paper” or selling the deal.

Why do condo assignments occur?

Condominium assignments typically occur for a few reasons. Often, the original condo buyer has had a change in circumstance and no longer wishes to close on the condo. a.k.a. partners, babies, pets, jobs, etc. The buyer might not have the funds to close or be able to secure a mortgage. Sometimes the original purchaser was a speculator who purchased with the intention of assigning the contract to profit from the increase in price or value.

Why can it make sense to assign my condo?

Money. One of the largest reasons it makes sense to assign your condo is that you don’t have to close on it. You don’t need to secure a mortgage and you don’t need to pay the closing costs. The new buyer will take on the builders adjustments or development charges. We have seen builder APS that states an additional 5% deposit payment on occupancy. If occupancy has not yet occurred, it would be the responsibility of the new buyer. The new buyer would also be responsible for the Land Transfer Tax, any interim occupancy fees, etc.

HST. You don’t have to worry about the HST rebate qualification.

First Time Buyer? If you are a first-time buyer, you would retain your status for the next purchase and be entitled to the credits when you do buy and take possession on some other property.

Why might it NOT make sense to assign my condo?

Restrictions. Marketing restrictions are often put in place by the developer when they allow the assignment. This can include restrictions to marketing the condo assignment on the MLS or even advertising it online. This alone can make the process very difficult. Thinking of advertising anyway? Builder contracts often state that if the assignment is advertised online, the builder can cancel your contract and keep your deposit. Not worth the risk.

Cost. Even though you are not closing on the property, there are still fees that you are responsible for. A builder will often impose a fee to allow you to assign your condo. This can range up to $8,000, plus charge their solicitors' fee’s (we have seen up to $2,000). You will likely have to pay a real estate commission (unless you find a buyer yourself). Plus your lawyer will charge slightly higher legal fee’s since the process is more complicated.

Tax. Any profit made will be taxed as a capital gain unless you are in the business of buying and selling real estate, in which case it will be treated and taxed as income. Yes, there was a time when you could get away with this, however, CRA has cracked down and is paying attention to real estate transactions. While these do not get registered on a title, assignments are still handled by the builder and are able to be caught by CRA.

Responsibility. Builders will always include a clause that states the original buyer is still responsible if the new buyer does not close. While it might originally seem like you are completely off the hook, the last thing you want is to find out that you need to close, or are responsible for the default of the assignee.

Top Dollar. While every project and unit is different, selling a unit without the ability for the buyer to see inside, or while a building is not fully finished can hold back the full value of what you can sell your condo for. For example - It is really hard for a buyer to get an idea of what exactly they can expect if the amenities are not finished, especially if the buyer will be an end-user. As well, there might be increased competition due to a surge of units.

Important things to know about condo assignments

Builder Approval. The first step in assigning your condo is finding out if the builder is allowing assignments. This is necessary because most original purchase and sales agreements have restrictions regarding assignments (or listed separately in a schedule). If the builder will consent to an assignment, the builder will need to provide written consent. This consent is usually a condition of the assignment agreement.

Deposit. Assignors typically want their money up front (this includes the original deposit(s) paid plus any profit) and wish to be out of the deal once the assignment agreement is firm. This is usually not practical because most buyers require a mortgage to fund the purchase and they will not get their mortgage until the building is registered and title can pass to the property. Expect the deposit to be held in trust until closing.

Time. Aside from the time, it will take to find a buyer and negotiate the details, you should plan for a number of days before the assignment deal is firm. Both lawyers (yours and the new buyer) will have a condition to review the documents - usually five business days or so. The buyer will want a condition for financing, which can be five business days or longer. Keep in mind that convincing an institutional lender to lend based on an assignment price is not as straight forward as normal financing. There are few sales for appraisers to base the new value on. And finally, you will need developer consent, which could take up to two weeks (or longer sometimes!), regardless if you had already asked before you started or not!

The world of condo assignments is a difficult and tricky one. If you are looking to get more information about assigning your pre-construction condo in Ottawa, fill out the form below and let’s chat.

If you are hunting for a condo in Ottawa, you might hear the term assignment, or that a condo is being sold as an “assignment”. While not a typical transaction, purchasing a condo assignment can be a lucrative way to get a great deal, or into a hot building that has no remaining inventory.

What is an assignment?

An assignment is a transfer by the original purchaser (the Assignor) of the original Agreement of Purchase and Sale (APS) to the new purchaser (the Assignee). This means that they are not selling or buying the actual condo, but rather they are selling or buying their interest in the deal. The new buyer (Assignee) is buying the ability to become the Assignor (original buyer). You often hear assignments referred to as selling “paper” or selling the deal. These can happen for any transaction, however in real estate the majority of times it is for either land assembly (buying numerous lots to create one large one - ie for building a condo development), or for single pre-construction condominiums. In Ottawa, it is rare for people to sell an assignment for a residential freehold (house) simply due to the lead time (only takes 6 months to build a house).

Why do condo assignments occur?

Condominium assignments typically occur for a few reasons. The first thing to remember is that condo units were typically first sold three to four years (or even longer) before the buyer could move in. Often, the original purchasers have had a change in circumstance and no longer want to continue with the purchase. a.k.a. partners, babies, pets, jobs, income, etc. The second reason we see often is that the original purchaser was a speculator who purchased with the intention of assigning the contract to profit from the increase in price or value.

Why can it make sense to purchase an assignment?

Hot building? Purchasing a condo assignment is a way to purchase a condo in a building that has no available inventory. It also is typically cheaper than purchasing the unit once the building has been registered and units are listed for resale. PLUS We have seen assignments that are priced lower than the similar unit that is available from the builder in the same project.

Plus you still have the benefits of buying brand new, such as being eligible for Tarion warranty program, pre-delivery inspections, etc. Compared to re-sale where you might have missed these opportunities.

Important things to know when looking to buy a condo assignment

1. You are buying a pre-construction condo and are taking on all of the risks. Delays, changes to occupancy, changes to the building, or even projects that flop and could be canceled. This also includes any interim occupancy payments. While it is the same risk as buying directly from the builder it is important to take note.

2. The original Agreement of Purchase and Sale (APS). When you are buying an assignment, you are replacing the original buyer, and you are taking on all of the terms, conditions, and obligations, that the original buyer agreed to. You are now fully responsible for the purchase. This can include terms that the original buyer might not have cared about, but they might matter to you. It is not possible to renegotiate the terms with the builder.

3. Builder Adjustments or Development Costs. In the original APS it will mention (often clause 6) the adjustments that will be charged by the builder on top of the purchase price. This is no different from buying directly from the builder, but not something you would deal with for a resale property. Usually, these can include development charges, education levies, park levies, initial contribution to the reserve fund, Tarion enrollment, HST on chattels, law society levy, builders solicitors confirmation of deposit letters, etc. These closing costs can easily amount to 1-3% of the original purchase price.

4. Capped Builder Adjustments. Often when purchasing a pre-construction condo from a builder you are able to negotiate and have the builders' adjustments capped (ex $5,000 or $10,000). It is important to know if the original purchaser had negotiated this. While it might seem like a no-brainer, most buyers are not aware it is possible and don’t even ask. Be aware that the cap might not be applicable to the assignee. Every deal and builder is different and this is constantly changing.

5. Deposit. Typically the original buyer (assignor) is looking to mirror the deposit that they have given to the builder. This can be 15% or 20%, which is held in trust until closing. Compared to a re-sale purchase where it can be significantly less. This often rules out assignments for buyers with a smaller downpayment. While this is negotiable between the Assignor and Assignee, it is standard and not typically lower than the original deposit amount.

6. Finishes and Upgrades. Depending on how far along you purchase the assignment, you might not be able to choose the finishes or any upgrades. If they have already been chosen, make sure you like what the Assignor picked out!

7. HST. HST with pre-construction condos can be a complicated beast. Every project can be different, however, it is up to the developer whether to give the HST rebate or have you apply directly to CRA. If the developer believes (or if the original purchaser said it would be for an investment), you will have to pay the HST on closing (and can apply for the rebate after).

8. Closing Costs. The closing costs can be slightly higher compared to a resale property. Legal fees are often higher since the deal is involving two transactions (acquiring the assignment, and the actual closing). Your lawyer should be able to break down the cost in advance.

9. Builder Approval. Every assignment is conditional upon the builder allowing the assignment to happen. Before the assignment is advertised, the assignor will ask the builder for permission. Many builders will not allow their original purchasers the ability to assign contracts. We have seen original APS that state that assignments are allowed, but then a schedule which declares they are not allowed! PLUS if the Assignor is given permission from the builder, there is typically a fee to allow them. We have seen this fee up to $7,000 plus the builder's legal fees of $2,000. While negotiable, this fee is typically the responsibility of the Assignor.

10. Your Team. Have the best team of professionals standing with you to make the purchase. Your lawyer and REALTOR should be experts.

Real estate transactions are complicated to begin with. On an average builder Agreement of Purchase and Sale there can be hundreds of clauses, dozens of schedules, and an endless amount of lawyer talk. The assignment process is more complicated and tricky, using paperwork, terms, and conditions, that doesn’t look anything like the usual APS for a resale condo. When you are looking at purchasing an assignment make sure you have a professional REALTOR well versed with condo assignments who can walk you through the entire process and ensure that you are well protected. If you are looking at buying a condo assignment in Ottawa, fill out the form below to chat!